| Mortgage
types
There are two types of mortgage on the market today; capital repayment
and interest only. In the first case, repayments cover both interest
and the loan itself; in the latter, interest is paid to the lender
and the loan itself is repaid by alternative means, for example
through an investment vehicle such as an endowment or savings plan.
However there are many different products. We will, of course,
explain your options to you personally, but the following guide
may help you see what options you might be able to consider.
Don’t worry about the number of choices to be made; Aegis
Mortgage Consultants aims to help you find the right one
to suit your current needs and circumstances.
Variable rate mortgage
This type of mortgage has an interest rate payable that can rise
and at the lender’s discretion and is likely to be influenced
by market conditions. It thus involves a degree of uncertainty as
monthly repayments can vary.
When a variable interest rate goes up, the monthly payments will
increase.
Buy-to-let mortgage
This is normally a mortgage arranged on property that is intended
to be let to other people and not occupied by the owner. There are
also buy-to-let mortgages where
only part of your home is let. Rates are generally higher than for
‘owner occupier’ mortgages.
The Financial Services Authority does
not regulate some aspects of buy-to-let mortgages.
Capped rate mortgage
Some mortgages can be arranged on a variable rate, but where the
rate will not (for an agreed period) rise above a set level. They
can, however move up and down below that level.
At the end of the capped period the loan will revert to the lender’s
standard variable rate which means the customer’s monthly
payments are likely to increase.
Capped rate products may have early repayment charges within or
beyond the capped rate period.
Cashback mortgage
Some mortgages offer customers a lump sum on completion of the mortgage,
perhaps to meet legal and removal charges. The amounts involved
can sometimes be quite substantial but there is usually a ‘tie-in’
period during which the full amount of the cashback may have to
be repaid to the lender in addition to any other early repayment
charges applicable if you cancel the mortgage.
Discounted mortgage
Some mortgages offer a set percentage lower than the standard variable
rate for a specified period for a set period. This is not a fixed
rate; the cost will simply be a set percentage lower than the normal
rate. In many cases, an early repayment charge will apply if you
cancel the mortgage, even if this is some time after the discounted
period has ended.
This involves a degree of uncertainty as monthly repayments can
vary. At the end of the discounted period the loan will revert to
the lender’s standard variable rate which means the customer’s
monthly payments are likely to increase.
Fixed rate mortgages
Fixed rate mortgages apply for a set period and ensure that borrowers
know precisely how much their monthly mortgage payments will be
for that time, irrespective of how interest rates may change. You
should be aware that, if interest rates generally fall below the
rate being paid, the fixed rate continues to apply for the agreed
period. At the end of the fixed rate period the loan will revert
to the lender’s standard variable rate which means the customer’s
monthly payments are likely to increase.
Fixed rate products may have early repayment charges within or
beyond the fixed rate period.
Offset mortgage
A recently introduced mortgage product (originating from Australia)
allows those with savings to offset the interest due on their mortgage
against interest they would have received on those savings held
with the same bank or building society.
This is a slightly complex arrangement and normally only applies
to those who have substantial savings, a good regular income (perhaps
with occasional bonuses) and who may require greater than usual
flexibility over repayments. They are generally only favoured by
the more financially astute individual.
Re-mortgage
Some people may wish to alter their mortgage even through they are
not moving, perhaps because they wish to try to secure a better
interest rate, or in order to raise additional finance for home
improvements or other purposes. This is called a re-mortgage and
is a growing part of the home purchase market.
You may have to pay an early repayment charge to your existing
lender if you remortgage.
Self certification mortgage
Most mortgage lenders required you to prove the level of your income,
in order to support the mortgage applied for. However, in some cases,
particularly the self employed where income may vary from year to
year, this is not practical, so some lenders will allow borrowers
to certify their income without having to produce documentary evidence.
This form of mortgage can be more expensive than conventional ones
and rates, including an APR will be provided on request.
Tracker mortgage
The interest rate for this type of mortgage reflects the changes
in a specified base rate, usually Bank of England base rate. This
means that every time the Bank of England base rate changes, the
rate on the tracker mortgage is guaranteed to change by the same
amount during the tracker period. This involves a degree of uncertainty
as monthly repayments can vary, however it may be suitable for customers
who wish the mortgage to mirror market conditions for a specified
period.
So if, for example, your mortgage is tracking at 0.5% above base
rate and the Bank of England move its rate from (say) 5.75% to 5.5%,
your mortgage rate will fall from 6.25% to 6%.
There may be a delay between the change in the base rate and the
time this is applied to the mortgage. Tracker products may have
early repayment charges within or beyond the tracker period. Some
tracker products may revert to the lenders standard variable rate
after a specified period which may mean that the monthly payments
will increase
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